Question 3 (12 Marks)

Kopycat Crayons Ltd. sells office supplies. One of the products it sells is ballpoint pens. Kopycat sells 250,000 ballpoint pens per year. Purchase price of the pens is $0.20 each, holding cost per annum for 1000 pens is $2 and costs of $42 are incurred for each order placed with the company's suppliers. It is usual for two weeks to elapse between the placing of an order and the receipt of pens into stock. Assume the company operates 52 weeks of the year.

REQUIRED:

a) Calculate the economic order quantity. (2 marks)

b) Calculate the number of orders placed per year. (2 marks)

c) Assuming the orders are placed for the EOQ quantity, calculate the re-order point. (2 marks)

d) Assuming that orders are placed for the EOQ quantity, calculate the Relevant Total Costs associated with purchasing and holding inventories of the pens (2 marks)

e) What is the Total annual costs for the pens ? (2 marks)

f). Identify and explain two assumptions under the simplest version of the EOQ decision model. (2 marks)